Costs Rise And Retail Stagnates Yet Recovery Will Occur

Key Takeaways

• Investments in logistics and personalization boost efficiency and engagement, but rising costs and price competition constrain margin and revenue growth.
  
• Demographic challenges and stiff competition risk limiting long-term customer base expansion and suppressing sustained earnings improvement.
  
• Weak consumer demand, heightened price competition, and rising costs threaten momo.com's profitability, with ongoing investments risking further margin compression amid challenging market conditions.

Catalysts

Engages in the TV and radio production, radio and TV program distribution, radio and TV commercial, video program distribution, issuing of magazine, and retailing businesses in Taiwan.

• While momo.com continues to benefit from the ongoing shift to online shopping-with active users rising 11 percent year-over-year and increasing penetration among younger demographics-the company faces structural headwinds from a stagnant broader retail market and diminishing growth in e-commerce penetration, which could cap future revenue expansion.
  
• Although momo.com's investments in proprietary logistics infrastructure and last-mile fulfillment are improving operational efficiency and supporting faster delivery times, capital expenditure requirements and elevated fulfillment costs-further pressured by climate and environmental regulations-threaten to constrain net margin growth over the long term.
  
• Enhanced data-driven personalization and a broadened product assortment have increased transaction volumes and repeat rates, but the overall decline in average ticket size and ongoing competitive price pressure in core categories like household goods and fashion could continue to weigh on top-line revenue growth.
  
• Despite the secular trend toward digital payments and increasing transaction frequency among moPlus members, momo.com operates in a region facing a demographic downturn, raising the risk that the addressable customer base will shrink over the coming years and ultimately limit long-term earnings growth.
  
• While current investments in marketing and new business initiatives aim to support sustainable revenue growth, intensified competition from entrenched platforms and potentially ineffective marketing spending may keep gross margins suppressed, hindering momo.com's ability to deliver sustained earnings or significant margin expansion.

momo.com Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on momo.com compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming momo.com's revenue will grow by 2.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 3.0% today to 3.5% in 3 years time.
• The bearish analysts expect earnings to reach NT$4.2 billion (and earnings per share of NT$13.22) by about July 2028, up from NT$3.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 21.6x on those 2028 earnings, up from 19.7x today. This future PE is greater than the current PE for the TW Multiline Retail industry at 19.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.0%, as per the Simply Wall St company report.

momo.com Future Earnings Per Share Growth

Risks

• Persistently weak consumer confidence, decelerating retail growth, and subdued discretionary spending in Taiwan are likely to constrain momo.com's revenue growth over the long term if macroeconomic headwinds do not subside.
  
• Intensifying price competition in core product categories such as diapers, toilet paper, and other household goods continues to erode gross margins, and further commoditization across e-commerce could create ongoing margin pressures for momo.com.
  
• A sustained decline in higher-priced and high-margin product sales, combined with a greater sales mix of lower average selling price items from the marketplace (3P) segment, is leading to a persistent reduction in average ticket size and overall profitability.
  
• Ongoing increases in marketing and technology investments intended to drive user growth may outpace revenue gains if market conditions remain challenging, potentially leading to structurally lower net margins and weaker earnings in future periods.
  
• High capital expenditures on logistics infrastructure and new fulfillment centers could stretch free cash flow if slower market growth or industry headwinds persist, limiting momo.com's ability to scale profitably in the long run.

Valuation

• The assumed bearish price target for momo.com is NT$295.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of momo.com's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$430.0, and the most bearish reporting a price target of just NT$295.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be NT$121.9 billion, earnings will come to NT$4.2 billion, and it would be trading on a PE ratio of 21.6x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of NT$265.5, the bearish analyst price target of NT$295.0 is 10.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.